US Markets

BUZZ-COMMENT-The art of timing the next dollar selloff

Credit: REUTERS/THOMAS WHITE

The U.S. Federal Reserve's somewhat expected, yet groundbreaking change of tack on its inflation stance [nL1N2FT0PR] has significantly slowed the dollar index's descent. Yet the bearish dollar argument remains relevant due to likely prolonged virus-related U.S. economic losses and persistent stimulus delays [nL1N2FT162], so sellers may return, at the right levels.

Aug 28 (Reuters) - The U.S. Federal Reserve's somewhat expected, yet groundbreaking change of tack on its inflation stance has significantly slowed the dollar index's descent. Yet the bearish dollar argument remains relevant due to likely prolonged virus-related U.S. economic losses and persistent stimulus delays , so sellers may return, at the right levels.

Thursday's bounce reversed the dollar's =USD dip into the Bollinger downtrend channel, currently at 92.766. That deflection will deter some shorts in the near term.

There are two major levels to monitor in anticipating the return of USD weakness. First is the entrance of the Bollinger uptrend channel at 93.426. If this barrier holds and is followed by a bearish candlestick formation, that would suffice to make some punters re-enter shorts.

Conviction would however be stronger if the dollar is squeezed up to the long-term Fibonacci resistance at 93.880, before recoiling into a bearish close. That sequence would be more enticing for would-be sellers.

Either way, a re-entry into the Bollinger downtrend channel could see a repeat of the smooth descent witnessed from July 8 to Aug 7. Affirmation of that bearish cue will set up the psychological barrier of 90.000 as the next target - a level last traded in April 2018.

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(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

((ewen.chew@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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